The document analyzes the long-run performance of Brazilian IPOs from 2004 to 2011. It finds that while IPOs exhibited positive initial returns, their performance over 1, 2, and 3 years was negative. However, IPOs backed by private equity or venture capital performed better than non-backed IPOs, with positive returns after 6 months. Overall, the study shows that Brazilian IPOs were underpriced in the short-run but generated negative long-run returns for investors.

1. PRIVATE EQUITY INFLUENCE IN BRAZILIAN IPOS FROM 2004 TO 2011
Estêvão Passos Eller
Ricardo Ratner Rochman
21-10-13

2. References
Objective:
Study the long run performance of Brazilian IPOs from 2004 to 2011
•
•
•
•
Invest in potential high growth companies
Acquire a significant portion of the company
Investment has low liquidity
They have a clear exit strategy (7 years in Brazil)
Barry et al. (1990) Berghe e Levrau (2002), ABDI (2009)
PE/VC offers more than
monitoring
Kortum e Lerner (2000),
Cochrane (2005)
Governance Mechanisms
Latini e Fontes Filho (2011)
They have incentives to monitor
and influence the management
in order to obtain an adequate
return
Tavares e Minardi (2009)
Board participation
Appoint managers
Exposition to a extensive networking
Management interaction
Pressure for results
Gompers e Lerner, 2001
Pre-investment agreements and contracts
Detailed shareholders agreement
Participation can change according to performance
Berghe e Levrau (2002)

3. References
PE/VC and the IPOs
Exit Strategies
Trade Sale
Secondary market
Buyback
IPO
Using the IPO PE/VC benefits of less information asymmetry
Window of
Opportunity
in Brazil
Ritter e Welch (2002)
ABDI, 2009
Megginson e Weiss (1991)
Differentiated corporate governance levels in Bovespa
Legal reform of Corporate Law (S.A.)
Attributions and responsibilities of CVM (similar to SEC, CNBV, SUPERVALORES, SVS)
Legal reform of bankruptcy law
Arbitration Chambers
Solid macroeconomic fundamentals
Saito e Maciel, 2006; Tavares e Minardi,
International Liquidity
2009; Aldrighi, 2009; ABDI, 2009

4. References
The long run performance of IPOs in Brazil
Aggarwal, Leal e
Hernandez (1993)
64 IPOs from 1980 to 1990
Underprice of 78,5%
3 year Buy and Hold of -43%
Saito e Maciel (2006)
27 IPOs from 1999 to 2005
Underprice of 10,4%
1 year CAR of 17%
Famá e Silva (2010)
106 IPOs from 2004 to 2007
Underprice of 7,1%
1 year CAR of -23,7% and 2 year CAR of -41,7%
Tavares e Minardi
(2009)
•
•
Positive first day return
Negative long run returns
53 IPOs from 2004 to 2007
Underprice of 6,9%
1 year CAR of 4,8% → PE/VC backed: 17,6% and non PE/VC of -7,6%
IPO Price Puzzle
Loughran e Ritter (1995)

5. Database
Offerings Prospects
Offerings Information
Shares prices

6. Sample Selection Criteria
146
• Debuted from 2004 to 2011
134
• Headquarter in Brazil
128
• The company produced events that could
impact the price of its shares (merger, split-up)
126
• Sample Selected
55
71
PE/VC Backed
Non PE/VC
Backed

7. Methodology
1
Return definition
2
Definition of Abnormal Return
Ibovespa Adjusted
3
Calculated the daily return of the portfolio using the
uniform weight
Market Adjusted Return: Equal-Weighted (MAEW)
4
Calculated the Cumulative Abnormal Return
5
Collected the results in 1, 6, 12, 24 e 36 months after the IPO
Cumulative Abnormal Return
After 22, 132, 264, 528 e 792 days after the IPO
6
Significance tests of results and mean differences
7
Least squares regression to test what influences the
abnormal return of Brazilian IPOs
- Private Equity or Venture Capital backed
- Total Volume
- IPO volume
- Market Capitalization
- Age of company on IPO
- Investors
- Before and after the subprime crisis
- Rank of the underwriter

8. Results
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
1
22 43 64 85 106 127 148 169 190 211 232 253 274 295 316 337 358 379 400 421 442 463 484 505 526 547 568 589 610 631 652 673 694 715 736 757 778
CAR Amostra
CAR com PE
CAR sem PE
Cumulative Abnormal Return (CAR) of Brazilian IPOs from 2004 to 2011 after 36 months
Source: The author with Economática, BM&F Bovespa and CVM data

9. Results
1 month
6 months
1 year
2 years
3 years
CAR22
CAR132
CAR264
CAR528
CAR792
Intercept
-0,513641
(-1,145697)
0,147386
(0,147866)
-0,369928
(-0,238741)
-4,337896
(-2,946941)***
-4,648202
(-2,723989)***
PE
-0,001824
(-0,090543)
0,116309
(2,16606)**
0,059625
(0,670031)
0,217159
(1,653314)
0,210776
(1,395655)
LVOL
0,063056
(2,666717)***
-0,006533
(-0,111273)
-0,001307
(-0,01347)
0,195765
(1,657148)
0,339316
(2,510384)**
LMKT_CAP
-0,037166
(-4,309455)***
-0,001724
(-0,06194)
0,018004
(0,386819)
0,010826
(0,126132)
-0,109950
(-1,128881)
VOL_PRIM
0,058021
(2,283474)**
-0,070395
(-0,73568)
-0,315559
(-2,343809)**
-0,327635
(-1,658888)
-0,337855
(-1,425941)
AGE
0,000526
(1,649666)
-0,000918
(-0,950012)
0,000591
(0,387367)
0,003550
(1,283768)
0,007120
(2,242517)**
RANK
-0,027709
(-1,438048)
-0,065909
(-1,231639)
-0,113436
(-1,389351)
-0,230147
(-1,642551)
-0,132420
(-0,856879)
CRISIS
0,014923
(0,592467)
0,169197
(2,769471)***
0,460242
(4,729727)***
0,666922
(3,659213)***
0,871040
(2,434298)**
INV
-0,000001
(-1,017654)
-0,000004
(-1,576391)
-0,000006
(-1,520641)
-0,000015
(-3,017)***
-0,000015
(-1,881695)*
UNDERPRICE
0,970160
(9,731153)***
1,147036
(3,610706)***
1,592988
(3,513616)***
0,801116
(1,006273)
-0,492664
(-0,455519)
F
13,58
5,120852
6,072365
4,342027
2,082663
R2
0,475275
0,228812
0,267512
0,213203
0,093923
SE
0,094281
0,267525
0,436755
0,654587
0,674179
Obs
126
126
126
112
95

10. Conclusions
1
10%
Overall
• Positive first day return: 3,47%
• Negative long run returns:
• First Year: -15,27%,
• Second Year: -37,32%,
• Third Year: -36,20%
0%
3%
-15%
-10%
-20%
-30%
-37%
-36%
-40%
First
Day
1 Year 2 Year 3 Year
2
Private Equity and Venture Capital backed companies perform better after 6 months